10th Mar 2005 07:00
Primary Health Properties PLC10 March 2005 Primary Health Properties PLC09 March 2005Embargoed for release at 7am on 10 March 2005 PRIMARY HEALTH PROPERTIES PLC ('PHP') Modern accommodation for the Provision of Primary Health Care Services Interim Results for the six months ended 31 December 2004 Group Financial Highlights *Pre tax profits increased by 8% to £1,343,000 (2003: £1,239,000) *Portfolio (including finance leases) increased to £145.8m (2003: £106.3m) *Basic earnings per share increased by 2% to 6.5p (2003: 6.4p) *Diluted earnings per share increased by 5% to 6.2p (2003: 5.9p) *Dividend increased by 9% to 6.0p (2003: 5.5p) *Fully diluted NAV per share increased 8% to 263.1p (30 June 2004: 243.7p) *Portfolio revaluation increase of £4.7m Harry Hyman, Managing Director, commented:"We are pleased to report strong progress for the first half of the financialyear. The business has performed well from an income and a capital standpoint. Our portfolio now consists of 66 properties with a value, including commitments,of £160 million. We are pleased to increase the interim dividend by 9%. With healthcare being high on both the political and public agenda the demandcontinues apace to bring primary health facilities into the twenty-firstcentury. We have a strong pipeline of deals for the remainder of the calendaryear and beyond to continue to participate in this transformation." Enquiries: Bell Pottinger Corporate & Financial David Rydell/Zoe Sanders Tel: 020 7861 3232 Primary Health Properties PLC Harry Hyman Managing Director Tel: 01483 306912 Mobile: 07973 344768 Chairman's Statement Group profit before taxation for the six months to 31 December 2004 totalled£1,343,000 (2003: £1,239,000), an increase of 8.4%. Profit after taxation for the six months to 31 December 2004 totalled £1,343,000(2003: £1,116,000), an increase of 20.3%, yielding basic earnings per share of6.5p (2003: 6.4p) and fully diluted earnings per share of 6.2p (2003: 5.9p), anincrease of 5.1%. As a result of the six monthly review of the property portfolio the value of theproperty portfolio has increased by £4.7m, with the fully diluted net assetvalue per share increasing to 263.1p per share compared to 243.7p at 30 June2004. This reflects both rental increases and current yields in the market. Thenet asset value was also affected by the issue of 3,478,260 shares following theconversion of the Loan Stock held by Royal Bank of Scotland, which weresubsequently placed with other institutions, and also the issue of 27,383Ordinary shares pursuant to the scrip dividend scheme. The basic net asset valueper share was 269.9p (30 June 2004: 274.7p). The number of Ordinary shares inissue as at 31 December 2004 was 21,652,776. The Board proposes to pay an interim dividend of 6.0p per share (2003: 5.5p) on26 May 2005, to Shareholders on the Register of Members on 18 March 2005. The Directors have the authority to offer Ordinary shares instead of cash inrespect of the dividend. A circular offering Shareholders on the Register ofMembers on 18 March 2005 the opportunity to elect to receive new Ordinary sharesinstead of the cash dividend in respect of the interim dividend together with aForm of Election and/or Notice of Entitlement will be posted to Shareholderswith the Interim Report on 8 April 2005. The latest date for receipt of theForms of Election is 9 May 2005. During the six months ended 31 December 2004 we have taken delivery of £12m ofcompleted and fully let properties at Dalkeith, Burton Latimer, Northamptonshireand Bentley, West Midlands and entered into new commitments totalling £5.5mduring the period at St Helens, Stafford, Bilsthorpe, and Cardiff. Since 31December 2004 we have entered into a further £2.2m of commitments. The table below sets out the portfolio at 31 December 2004: 31 December 2004 30 June 31 December 2003 £m 2004 £m £m Investment properties 139.2 122.5 99.4Properties in the course of development 2.4 2.8 2.6Finance Leases 2.5 2.5 2.6Development Loans 1.7 3.3 1.7Total owned and leased 145.8 131.1 106.3Deposit Paid 0.1 - 0.1Committed 14.1 18.2 21.0Total owned, leased and committed 160.0 149.3 127.4 We have a strong forward pipeline of transactions. The annualised rent roll has increased from £8.4m at 30 June 2004 to £9.8m at 31December 2004, representing both new deliveries and rental increases. Rentalincreases secured during the period amounted to some £215,000. Work continues onoutstanding rent reviews. On balance we continue to obtain satisfactory rentreviews although the process is time consuming. We have continued to monitor our exposure to interest rates and have enteredinto a new £10m swap for 10 years from 2005 to 2015; and a new £20m swap from2010 to 2015. From 2 January 2005 we have covered approximately 65% of ourexposure to interest rates for the year 2005. We have reached agreement with our principal bankers to extend and increase theamount of our committed term loan facility from 2008 to 2013. Including newcommitments from AlB this takes our total available term loan facilities to£115m rising to £125m in 6 months time. We are continuously reviewing our ability to maximise gearing and sources offunding within current parameters and to balance this with our desire to growour investment portfolio. The share save scheme has 38 members representing 46,368 shares. Our joint venture relating to LIFT has been dormant during the period. The portfolio now has 66 properties with a further 8 contracted for delivery.The portfolio has performed well and we believe that the combination of the highquality property portfolio, long lease lengths and strong covenant quality makea very desirable portfolio for future income and capital appreciation. G A ElliotChairman9 March 2005 International Financial Reporting Standards The European Commission has directed that all listed companies in the EuropeanUnion must present their consolidated group results in accordance withInternational Financial Reporting Standards (IFRS) for accounting periodscommencing on or after 1 January 2005. Primary Health Properties PLC will,therefore, apply IFRS for the first time to our financial year ending 30 June2006. Our first report to Shareholders under IFRS will be the Interim Reportfor the six months ending 31 December 2005. The new accounting standards will represent a fundamental change in accountingand reporting. The Group has been considering the challenges of implementingIFRS for some time and is advanced in its planning and preparations tosuccessfully make the transition from UK Generally Accepted AccountingPrinciples (UK GAAP). The Group will present quantified details of the accounting impact of adoptingIFRS following publication of the Group's 30 June 2005 final UK GAAP annualresults. The principal areas where IFRS differs from UK GAAP that will affectthe Group's results are considered below. Accounting for Investment Property Property revaluation movements are recorded in the profit and loss account (orincome statement as it will become) under IFRS. Currently under UK GAAP theyare treated as a movement in reserves. Reported profits will therefore besubject to greater volatility. The Group expects that all of its leasehold properties will be classified asoperating leases under IFRS. They will continue to be revalued every six monthsand shown as investment properties. Deferred Tax Accounting IFRS requires full deferred tax provision to be made for all taxable temporarydifferences between cost values for tax purposes and accounting values. UK GAAPon the other hand does not require any provision to be made where there is noobligation to pay additional tax at some future date. As a result net assetswill be reduced under IFRS accounting. For our Group, the most significant difference between base cost values for taxpurposes and accounting values comes from the revaluation of investmentproperties. The Group will only potentially suffer a payment of tax if it sellsthese investments. The amount of tax then to be paid will reflect the saleprice achieved, the structure of the sale transaction, and any other allowancesfor tax that may be available at that time. Therefore, the deferred taxprovision that the Group will be required to provide within its opening balancesheet reserves under IFRS, and the subsequent provision movements arising onfuture valuation changes in its income statement, will not necessarily representan amount of tax that the Group will suffer at a future date. Derivatives Primary Health Properties has entered into a number of interest rate swapcontracts to manage its risk exposure to changes in interest rates charged onits' floating rate loan facilities. UK GAAP as it applies to the Group's currentfinancial year does not require these derivatives when used as a hedge to bevalued in the balance sheet. Under our present policy, gains and losses onthese hedges are deferred until the underlying hedged item is recognised in theprofit and loss account. IFRS requires all derivatives, whether cash flowhedges or fair value hedges, to be carried at their fair values in the balancesheet. The hedge accounting provisions of IFRS provide for changes in the valueof these interest rate swap contracts to be recorded as a movement in reserves,thus reducing the sensitivity of the income statement to their fair valuemovements. IFRS requires the effectiveness of these hedges to be regularlytested, with ineffective portions of the hedges not treated as a reservemovement but as a charge to the income statement. The Group expects all of itsinterest rate swap contracts to be fully effective and to account for them ascash flow hedges. Dividends IFRS only allows for a dividend declared for distribution to shareholders to berecorded in a company's accounts when its declaration is within the accountingperiod it represents. Similarly, final dividends that must be approved byshareholders in general meeting cannot be recorded in the accounting period theyrepresent. UK GAAP, prior to its partial convergence with IFRS, requiresproposed final dividends to be accrued. A one-off increase in net asset valuewill result from this change equivalent to the net cost of the proposeddividend. Share Based Payments The Group has incentivised its Joint Managers with the granting of an option tosubscribe for a fixed amount of shares at a fixed price, exercisable at ant timebetween 31 March 2006 and 31 March 2013 where performance criteria have beenachieved. Under UK GAAP as applied to the Group's current financial year, thisshare option is accounted for prospectively. The number of shares issued andthe funds received from the exercise of options are included in the calculationof fully diluted net asset value. IFRS will require the option granted to bemeasured at its fair value with an equivalent amount charged over the vestingperiod to the income statement. CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the six months ended 31 December 2004 Six months ended Year ended Six months 31 December 2004 30 June ended 31 2004 December 2003 £'000 £'000 £'000 (unaudited) (audited) (unaudited) Turnover 4,580 7,661 3,641Administrative expenses (1,032) (1,738) (823) Operating profit 3,548 5,923 2,818Share of operating profit in joint venture - 4 - 3,548 5,927 2,818 Interest receivable 162 183 46Interest payable (2,367) (3,638) (1,625) Profit on ordinary activities before taxation 1,343 2,472 1,239 Taxation - - (123) Profit on ordinary activities after taxation 1,343 2,472 1,116 Interim dividend of 6.0p per share (2004: interim (1,299) (1,995) (997)5.5p and final 5.5p)Additional final dividend 2003 - (69) (69) (1,299) (2,064) (1,066) Profit retained for the period 44 408 50 Earnings per share - basic 6.5p 13.9p 6.4p - diluted 6.2p 12.8p 5.9p All activities are continuing. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESfor the six months ended 31 December 2004 Six months ended Year ended Six months 31 December 2004 30 June 2004 ended 31 December 2003 £'000 £'000 £'000 (unaudited) (audited) (unaudited) Profit for the period excluding share of profit in 1,343 2,468 1,116joint ventureShare of joint venture's profit for the period - 4 - Profit for the period attributable to members of the 1,343 2,472 1,116Parent CompanyUnrealised surplus on revaluation of properties 4,694 10,050 4,000 Total gains and losses relating to the period 6,037 12,522 5,116 All activities are continuing. CONSOLIDATED BALANCE SHEETas at 31 December 2004 At 31 December At 30 June At 31 December 2004 2004 2003 £'000 £'000 £'000 (unaudited) (audited) (unaudited) Fixed AssetsTangible assets 143,323 128,612 103,680 Current assetsDebtors 1,453 1,104 1,312Net investment in finance leases: amounts falling due in 2,536 2,549 2,561more than one yearCash at bank 3,340 709 1,989 7,329 4,362 5,862 Creditors: amounts falling due within one year (7,742) (6,911) (5,048) Net current (liabilities) /assets (413) (2,549) 814 Total assets less current liabilities 142,910 126,063 104,494 Creditors: amounts falling due after more than one year Bank loans (84,460) (72,210) (57,100)Convertible loan stock 2016 - (4,000) (4,000) (84,460) (76,210) (61,100) 58,450 49,853 43,394Capital and reservesCalled up share capital 10,826 9,074 9,063Share premium account 9,566 7,459 7,419Capital reserve 1,618 1,618 1,618Revaluation reserve 34,997 30,303 24,253Profit and loss account 1,443 1,399 1,041 Equity shareholders' funds 58,450 49,853 43,394 Net asset value per share - basic 269.94p 274.72p 239.40p - diluted 263.13p 243.65p 216.04p CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 31 December 2004 Six months ended Year ended Six months ended 31 December 2004 30 June 2004 31 December 2003 £'000 £'000 £'000 (unaudited) (audited) (unaudited) Net cash inflow from operating activities 3,488 6,167 2,506 Returns on investments and servicing of financeInterest received 11 16 6Interest paid (1,898) (3,157) (1,882) Net cash outflow from return on investments (1,887) (3,141) (1,876)and servicing of finance Capital expenditure and financial investmentPayments to acquire tangible fixed assets (8,741) (21,077) (4,820)Development loans advanced (1,171) (3,223) (1,637)Deposits paid (172) - -Loan to joint venture - (27) (27) (10,084) (24,327) (6,484) Equity dividends paid (932) (1,804) (857) Net cash outflow before financing (9,415) (23,105) (6,711) FinancingExpenses of listing particulars (200) - -Ordinary share issue (net of expenses) (4) 1,386 1,382Term bank loan 2013 12,250 22,010 6,900 Net cash inflow from financing 12,046 23,396 8,282 Increase in cash 2,631 291 1,571 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Six months Year ended Six months ended ended 30 June 31 December 2003 31 December 2004 2004 £'000 £'000 £'000 (unaudited) (audited) (unaudited) Increase in cash in the period 2,631 291 1,571 Cash inflow from loans (12,250) (22,010) (6,900)Loan Stock conversion into Ordinary shares 4,000 - - Movement in net debt in the period (5,619) (21,719) (5,329) At the beginning of the period (75,501) (53,782) (53,782) At the end of the period (81,120) (75,501) (59,111) Net debt comprises: Cash at bank and in hand 3,340 709 1,989Term loan (84,460) (72,210) (57,100)Convertible Loan Stock 2016 - (4,000) (4,000) (81,120) (75,501) (59,111) Reconciliation of operating profit to net cash inflow from operating activities Six months ended Year ended Six months ended 31 December 2004 30 June 31 December 2003 2004 £'000 £'000 £'000 (unaudited) (audited) (unaudited) Operating profit 3,548 5,923 2,818Increase in operating debtors and prepayments (177) (289) (380)Increase in operating creditors and accruals 117 533 68 Net cash inflow from operating activities 3,488 6,167 2,506 NOTES: 1. The interim financial information has been prepared on the basis of the accounting policies set out in the Group's 2004 statutory accounts. 2. The freehold and leasehold properties are included at valuation as at 31 December 2004. Fixed assets consist of: 31 December 30 June 31 December 2004 2004 2003 £'000 £'000 £'000 (unaudited) (audited) (unaudited) Tangible assets:Investment properties 141,561 125,266 102,001Development Loans 1,762 3,346 1,679 143,323 128,612 103,680Investments:Investment in joint venture Share of gross assets - 4 39 Share of gross liabilities - (4) (39) - - - 143,323 128,612 103,680 JOINT VENTURE Primary Health Properties PLC owns 50% of the issued Ordinary share capital ofPrimary Health Solutions Limited, a company created for the purpose ofdeveloping properties for sale and leaseback and to tender for contracts underthe Government's LIFT (Local Improvement Finance Trust) initiative. Theremaining 50% of the issued Ordinary share capital is owned by BrackleyInvestments Limited. 3. Following the exercise of Management options to purchase 1,386,667 Ordinary shares on 17 September 2003, the Joint Managers were on the Register of Members as at 26 September 2003, and accordingly received the final dividend in respect of the year ended 30 June 2003. 4. Earnings per share The calculation of earnings per share is based on earnings of £1,343,000 (30 June 2004: £2,472,000; 31 December 2003: £1,116,000) and 20,704,623 Ordinary shares (30 June 2004: 17,824,559; 31 December 2003: 17,520,993) being the weighted average number of shares in issue during the period. Diluted earnings per share is calculated in accordance with Financial Reporting Standard No. 14: Earnings per Share. It is based on earnings of £1,384,000 (30 June 2004: £2,782,000; 31 December 2003: £1,257,000) and 22,161,857 Ordinary shares (30 June 2004: 21,741,893; 31 December 2003: 21,235,897) being the weighted average number of Ordinary shares in issue during the period. The calculation of diluted earnings per share as at 31 December 2004 is based on the following: Earnings: Weighted Average Number of Ordinary Shares: £ NumberProfit on ordinary activities after 1,343,000 Issued share capital 20,704,623taxation Dilutive effect of 530,958 options Interest saved on conversion of Loan Stock 41,000 Dilutive effect of 926,276 Convertible Loan Stock 1,384,000 22,161,857 5. Fully diluted net asset value has been calculated as follows: 31 December 2004 30 June 31 December 2003 2004 £'000 £'000 £'000 (unaudited) (audited) (unaudited)Net assets:Per Consolidated Balance Sheet 58,450 49,853 43,394Add - Loan Stock conversion - 4,000 4,000 - Receipts from the exercise of options 2,736 2,736 2,736 61,186 56,589 50,130 No. of shares No. of shares No. of sharesOrdinary shares:Issued share capital 21,652,776 18,147,133 18,126,313Add - Loan Stock conversion into shares - 3,478,260 3,478,260 - New shares issued on exercise of 1,600,000 1,600,000 1,600,000 options 23,252,776 23,225,393 23,204,573 Calculations assume that the dilution takes place on the respective balancesheet dates. 6. On 19 August 2004, the holder of the Convertible Loan Stock 2016 convertedall of the Loan Stock held into Ordinary shares of 50p each. As a result3,478,260 Ordinary shares were issued. 7. The financial information set out above does not constitute the Company'sstatutory accounts as defined in Section 240 of the Companies Act 1985. Thefinancial information for the year ended 30 June 2004 is based on the statutoryaccounts for the year. Those accounts, upon which the auditors issued anunqualified opinion, have been delivered to the Registrar of Companies. The Interim Report will be posted to Shareholders with the Scrip DividendCircular offering Shareholders the opportunity to elect to receive new Ordinaryshares instead of the cash dividend on 8 April 2005, and to those on the mailinglist as soon as practicable thereafter. It will also be available on requestfrom the Company Secretary, J O Hambro Capital Management Limited, Ground Floor,Ryder Court, 14 Ryder Street, London, SW1Y 6QB. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Primary Health